The global economy showed positive signals in October with notable improvements in the US, Japan, and India. Key economic indicators provide insight into market trends and future growth expectations.

The US trade deficit narrowed to USD 70.4 billion in August 2024, marking the lowest level in five months. This improvement follows an upwardly revised trade deficit of USD 78.9 billion in July. The reduction in the deficit suggests a boost in exports or a decrease in imports, contributing to a healthier balance of trade for the US economy. As the global trade environment stabilizes, this trend could further support the recovery of the US economy.

In another positive sign for the US, the TIPP Economic Optimism Index increased by 0.8 points to 46.9 in October 2024. This marks the highest level since April 2023, just shy of market expectations of 47.2. The rise in economic optimism reflects growing consumer and investor confidence, even as inflationary pressures and interest rate concerns persist.

Japan’s Reuters Tankan sentiment index for manufacturers showed a marked improvement in October, rising to 7 from 4 in September. The rise indicates growing business confidence among Japanese manufacturers, which is a positive sign for Japan’s economy. However, concerns about the strength of China’s economic recovery continue to cloud the outlook, particularly for export-driven sectors.

In India, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 6.5%, while shifting its policy stance to “neutral” from “withdrawal of accommodation.” This move signals the central bank’s balanced approach towards managing inflation while supporting growth.

The RBI also reaffirmed its projections for FY25, maintaining its forecast for real GDP growth at 7.2% and CPI inflation at 4.5%. The steady outlook reflects confidence in India’s economic resilience amid global uncertainties.

International Monetary Fund (IMF) Executive Director KV Subramanian has urged Indian states to play an active role in implementing economic reforms to help India achieve its ambitious target of becoming a USD 55 trillion economy by 2047. This call emphasizes the importance of coordinated efforts across both national and state levels to drive growth and development.

The global economic landscape is showing signs of resilience as the US trade deficit narrows, optimism rises, and Japan’s business sentiment improves. In India, the RBI’s steady stance on interest rates and positive growth projections further highlight the country’s economic strength. However, challenges such as China’s economic recovery and inflation risks remain key factors to watch moving forward.

In a move broadly in line with market expectations, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) announced its decision to maintain the repo rate at 6.5% during its October 9 meeting. However, the central bank shifted its policy stance from “withdrawal of accommodation” to “neutral,” indicating a more flexible approach moving forward. This change comes as the RBI continues to express concern over inflationary pressures, particularly in light of rising fuel prices and unfavorable base effects.

Despite retaining its GDP growth and inflation estimates for FY25, the RBI highlighted the risks of sticky inflation. Governor Shaktikanta Das emphasized that while inflation has shown signs of moderation in recent months, the central bank remains cautious. “The inflation horse has been brought to the stable within the tolerance band. However, we must be careful about opening the gate,” said Das, indicating that inflation could still pose challenges in the near term.

The RBI expects the Consumer Price Index (CPI) for September to rise due to unfavorable base effects and a spike in fuel prices. While the overall inflation projection for FY25 remains unchanged at 4.5%, the RBI revised its quarterly estimates. The central bank cut the Q2FY25 CPI forecast to 4.1% from 4.4%, raised Q3 estimates to 4.8%, and made slight downward revisions for Q4FY25 and Q1FY26.

The RBI maintained its GDP growth projection for FY25 at 7.2%, signaling continued optimism about the Indian economy’s resilience. However, the central bank trimmed its Q2FY25 growth forecast to 7%, citing potential headwinds. It offset this by raising the growth outlook for the latter half of the fiscal year and Q1FY26, with projections of 7.4% for Q3 and Q4FY25 and 7.3% for Q1FY26.

While these adjustments suggest a mixed outlook, the overall trajectory remains positive, reflecting the central bank’s confidence in the economy’s ability to withstand inflationary pressures and external shocks. The shift to a “neutral” policy stance, agreed upon by all six MPC members, provides the RBI with greater flexibility to respond to evolving economic conditions. However, the lack of downward revision in growth and inflation estimates suggests that any immediate move towards rate cuts remains unlikely.

The RBI’s decision to maintain the repo rate at 6.5% stands in contrast to the US Federal Reserve’s recent rate cuts. In September, the Fed slashed rates by 50 basis points, with further reductions expected in November and December. Despite these global trends, the RBI has chosen to prioritize domestic economic stability and inflation control over following the US lead in monetary easing.
In addition to its monetary policy decisions, the RBI announced several initiatives aimed at enhancing financial inclusion. The central bank proposed raising the per-transaction limit for UPI 1 2 3 Pay from ₹5,000 to ₹10,000 and increasing the UPI Lite wallet limit from ₹2,000 to ₹5,000. The per-transaction limit for UPI Lite was also raised from ₹100 to ₹500, further promoting the use of digital payment systems.

Governor Das also addressed concerns about potential stress buildup in the unsecured lending segment, particularly in loans for consumption purposes, microfinance, and credit cards. The RBI is closely monitoring these sectors and emphasized the need for banks and NBFCs to maintain robust underwriting standards and monitoring practices.

The RBI’s decision to hold repo rates steady while shifting to a “neutral” stance reflects a delicate balancing act between controlling inflation and supporting economic growth. With inflation risks still on the horizon and global uncertainties persisting, the central bank has kept its options open, signaling that it will remain vigilant and responsive to changing conditions. For businesses and consumers, this means continued stability in borrowing costs for now, but with a cautious eye on potential inflationary pressures.

Home loan borrowers hoping for a reduction in their EMIs may need to be patient, as economists predict that the Reserve Bank of India (RBI) is unlikely to announce a rate cut in its upcoming bi-monthly credit policy on October 9. Instead, the central bank is expected to introduce rate cuts in December 2024 and February 2025, according to economic forecasts. The RBI’s repo rate has remained steady at 6.5% since February 2023, and although a rate cut is anticipated, it will not come immediately.

Economists predict that the RBI may opt for a 50-basis point (bps) reduction in two phases—25 bps each in December 2024 and February 2025. This gradual approach is in line with global monetary easing trends, where central banks such as the US Federal Reserve, European Central Bank (ECB), and others have already reduced interest rates. Chief Economist at ICRA, believes that while the RBI may keep rates unchanged in October, it could change its stance from “withdrawal of accommodation” to “neutral.” This shift could pave the way for future rate cuts, depending on inflation trends and global economic conditions.

Given that home loan interest rates are directly linked to the RBI’s repo rate since October 2019, a rate cut will directly impact home loan borrowers. If the repo rate is reduced by 50 bps as predicted, borrowers can expect lower EMIs or shorter loan tenures, depending on their preferences.

For instance, if a borrower has taken a ₹75 lakh home loan payable over 20 years at a 9% interest rate and the rate drops to 8.75% after 36 months, the total repayment amount would fall from ₹1.62 crore to ₹1.57 crore. This change could save the borrower around ₹4.97 lakh and shorten the loan tenure by seven months. If the rate cut is more substantial, such as a 50 bps reduction to 8.5%, the total repayment would drop to ₹1.51 crore, saving the borrower ₹11 lakh and shortening the loan term by 16 months.

Nationalized banks are expected to pass on the benefits of a repo rate cut immediately, while private banks may take longer—typically implementing the cut at the start of the following month or quarter, depending on the loan agreement. Borrowers with floating rate loans will have the option to either lower their EMIs or maintain their current EMIs and reduce the loan tenure.
In a declining interest rate environment, borrowers can also consider refinancing their home loans with lenders offering lower interest rates. This can help borrowers take advantage of better deals and minimize their overall repayment costs.

Home loan borrowers in India may have to wait until December for any significant reduction in their EMIs, the prospects of repo rate cuts in late 2024 and early 2025 offer potential relief. With expectations of a 50-bps rate cut, borrowers can look forward to saving on interest payments or shortening their loan tenures. However, immediate action is unlikely, with the RBI expected to keep its rates steady in the upcoming October policy review.

The Asian Development Bank (ADB) has maintained India’s growth forecast at 7% for the current fiscal year, with expectations of an accelerated growth rate of 7.2% in FY26, according to the report released on September 25. This projection aligns with the Reserve Bank of India’s (RBI) forecast, signaling strong economic resilience despite global geopolitical challenges.

Key highlights of India’s economic growth projections:

Steady economic growth: ADB’s forecast of 7% growth for FY24 underscores India’s economic stability, driven by favorable domestic factors and a robust recovery from previous global challenges.

Accelerated growth in FY26: ADB projects a growth rate of 7.2% for FY26, further highlighting the country’s economic potential. This positive outlook is fueled by continued investments and strong domestic demand, alongside government efforts to boost infrastructure and capital expenditure.

Impact of monsoon on agriculture: ADB emphasized the positive effect of an above-average monsoon in most regions of the country, which is expected to drive strong agricultural growth and contribute to the rural economy’s expansion in FY25.

Inflation and Monetary policy outlook:

Inflation forecast for FY24: ADB has revised its inflation forecast to 4.7% for FY24, up from its April projection of 4.6%, primarily due to rising food prices. Despite increased agricultural output expectations, food inflation remains a concern, preventing the RBI from implementing more accommodative monetary policies.

Future inflation trends: Inflation is expected to moderate in the coming years, with a projected decrease to 4.5% by FY26. ADB notes that while monetary policy may become less restrictive, it will not ease as quickly as previously anticipated due to persistent inflationary pressures.

External sector and risks:

Current account deficit: India’s current account deficit is projected to widen, reaching 1% of GDP by FY25 and further expanding to 1.2% in FY26. Geopolitical shocks and supply chain disruptions may exacerbate this deficit, alongside potential commodity price fluctuations.

Downside risks: ADB highlighted several downside risks for FY24, including geopolitical shocks that could affect global supply chains and commodity prices. Weather-related shocks could also pose risks to agricultural output. Additionally, failure to meet government capital expenditure targets may negatively impact growth.

India’s economy is on a solid growth trajectory, with ADB retaining its 7% forecast for FY24 and projecting faster growth of 7.2% by FY26. However, rising inflation and external risks, including geopolitical shocks and agricultural challenges, remain key concerns. Despite these headwinds, India’s steady economic resilience positions it well for continued growth in the coming years.

Finance Minister Nirmala Sitharaman presented the Union Budget for the financial year 2024-25 in Parliament today. This marks her seventh budget and the first of Prime Minister Narendra Modi-led government’s third term. Here are the crucial takeaways:

“India’s economic growth continues to be the shining exception and will remain so in the years ahead,” said FM Sitharaman. Despite global economic uncertainties, India’s economic outlook remains robust. The FM outlined nine priorities, focusing on productivity in agriculture, employment and skilling, inclusive HRD, manufacturing and services, urban development, energy security, infrastructure, innovation, and next-generation reforms.

• Capex for FY25: The government has allocated ₹11.11 lakh crore for capital expenditure, amounting to 3.4% of India’s GDP. This is an increase from the revised estimate of ₹9.5 lakh crore last year.
• Income Tax: Changes in the new tax regime include a proposed increase in the standard deduction to ₹75,000 from ₹50,000. The revised tax rate structure under the new regime is:
  ₹0-3 lakh: 0%
  ₹3-7 lakh: 5%
  ₹7-10 lakh: 10%
  ₹10-12 lakh: 15%
  ₹12-15 lakh: 20%
  ₹15 lakh and above: 30%
• Capital Gains Tax: Long-term capital gains on all financial and non-financial assets will now attract a tax rate of 12.5%, up from 10%. Short-term capital gains tax has been increased to 20% from 15%. The exemption limit for capital gains is set at ₹1.25 lakh per year.
• Futures and Options (F&O): The Securities Transaction Tax (STT) on F&O trading has been doubled. The new STT rate is 0.02% from the previous 0.01%.
• Mudra Loans: Limit increased to ₹20 lakh from ₹10 lakh.
• Higher Education Loans: Support for loans up to ₹10 lakh with e-vouchers and a 3% interest subvention.
• Insolvency and Bankruptcy Code (IBC): Integrated tech platform to improve outcomes.

Budget Estimates for FY25
Fiscal Deficit: Lowered to 4.9% of GDP from 5.1%.
Market Borrowing: Decreased to ₹14.01 lakh crore from ₹15.43 lakh crore.
Receipts and Expenditure: Receipts at ₹32.07 lakh crore, expenditure at ₹48.21 lakh crore.

The Union Budget 2024-25 aims to drive economic growth, enhance employment opportunities, and simplify the tax regime, setting a comprehensive roadmap for India’s development.

China’s annual inflation rate decreased to 0.2% in June, down from 0.3% in the previous two months, and below market expectations of 0.4%. This slight dip indicates a continued easing of inflationary pressures in the world’s second-largest economy. Additionally, China’s producer prices fell by 0.8% year-on-year in June, aligning with market forecasts. This decline, however, shows an improvement from May’s 1.4% drop, suggesting some stabilization in producer costs.

In Japan, producer prices increased by 2.9% year-on-year in June, up from a revised 2.6% growth in the previous month. This rise is consistent with market estimates, reflecting ongoing cost pressures in the Japanese economy.

India’s Reserve Bank of India’s (RBI) financial inclusion index jumped to 64.2 in March 2024, up from 60.1 a year prior. This rise across all parameters indicates progress in making financial services accessible to a wider population.
However, challenges likely remain, as evidenced by RBI MPC member Ashima Goyal’s call for improved farm productivity and supply chains to combat food price volatility. The RBI’s variable rate repo auction on July 9, 2024, received bids worth Rs 21,310 crore, falling short of the notified amount of Rs 25,000 crore. This suggests the central bank is carefully managing liquidity in the Indian financial system.

Key highlights

• China’s inflation down to 0.2% in June, missing estimates of 0.4%
• China’s producer prices fell by 0.8% y-o-y in June, improving from a 1.4% decline in May
• Japan’s producer prices increased by 2.9% y-o-y in June, consistent with market expectations
• India’s FI index rose to 64.2 in March 2024 from 60.1 in March 2023
• Emphasis on improving farm productivity and supply chains; received Rs 21,310 crore bids at VRR auction against a notified amount of Rs 25,000 crore

Rising optimism for a US Fed rate cut and weakness in US dollar rates have propelled gold prices to a six-week high at $2,391 per ounce in the international market. In the domestic market, gold futures on the Multi Commodity Exchange (MCX) for August 2024 expiry regained the ₹73,000 mark, logging around a 2% weekly gain. On Friday, MCX gold rates surged by ₹671 per 10 gm, finishing at ₹73,038. Similarly, silver prices climbed to a four-week high, ending at $31.20 per ounce in the international market.

Commodity market experts attribute the uptrend in gold prices to the anticipated US Fed rate cut, which has weakened the US dollar. A rate cut typically makes gold more attractive to investors as the US dollar declines. Easing US inflation concerns, fueled by better-than-expected US job data and the US core PCE index showing the lowest annualized increase in over three years, have further supported the gold price rally.

Key factors influencing gold prices

• US Fed Rate Cut: The anticipated rate cut has pressured the US dollar, boosting gold prices. Head of Commodity & Currency at HDFC Securities, noted, “Gold prices in the international market have climbed to a six-week high, and silver rates have touched a four-week high due to easing US inflation concerns, boosting the US Fed rate cut buzz.”
• Market Sentiment: Commodity Researcher at Kotak Securities, highlighted that Comex Gold extended gains amid rising bets on a Federal Reserve rate cut before year-end. “Swaps traders are now pricing in a 70% chance of a rate cut in September,” she said.
• Economic Data: The latest US Nonfarm Payrolls report showed a probable increase of 190,000 jobs last month, with unemployment holding at 4%, the highest in over two years. This data could strengthen the case for the Fed to start cutting interest rates, potentially boosting gold prices further.

The US Consumer Price Index (CPI) data for June is scheduled for releasing in next week. This data will further influence the US central bank’s rate-cut path and, consequently, gold prices. The CPI data will be critical in confirming whether inflation is indeed cooling, which would bolster the case for a rate cut and likely support higher gold prices. The combination of a weaker US dollar, potential US Fed rate cuts, and key economic data releases are set to continue influencing gold prices, making it a crucial period for investors and market watchers.

The World Bank has revised its growth projections for the US economy, now anticipating a 2.5% growth rate in 2024, consistent with 2023 but significantly higher than the earlier estimate of 1.6%.

In its June 11 report, the World Bank maintained its GDP growth forecast for India at 6.6% for FY25. This follows an earlier adjustment in April, where India’s GDP growth projection was raised by 20 basis points to 6.6% for the current financial year. The global agency highlighted that India will continue to be the fastest-growing major economy, despite a slight moderation in its growth pace. After achieving high growth in 2023-24, India is projected to maintain steady growth of 6.7% annually on average over the next three fiscal years starting in 2024-25.

Key projections for India:

• FY25 GDP Growth: 6.6%
• FY26 GDP Growth: 6.7%
• FY27 GDP Growth: 6.8%

India’s GDP growth exceeded expectations, standing at 7.8% in the January-March quarter, although it was slightly slower than the 8.4% growth in the previous quarter. The full-year GDP growth for 2023-24 has been revised upwards to 8.2% from the second advance estimate of 7.6%, according to data from the Ministry of Statistics and Programme Implementation released on May 31.

The Reserve Bank of India anticipates a 7.2% growth rate for FY25.

Global economic outlook:

• Global GDP growth: 2.6% for 2024-25, 20 basis points higher than the January estimate
• FY26 & FY27 growth: Expected at 2.7%

The World Bank’s June 2024 Global Economic Prospects report indicates that global growth will stabilize at 2.6% this year, remaining steady for the first time in three years despite geopolitical tensions and high interest rates. Growth is projected to increase slightly to 2.7% in 2025-26, driven by modest improvements in trade and investment.

South Asia Region (SAR) forecast:

• 2024 GDP growth: 6.2%, down from 6.6% in 2023 due to India’s slower growth
• 2025-26 GDP growth: Expected to remain at 6.2%

Despite steady growth in India, the SAR region’s growth is expected to stay at 6.2% in 2025-26. Bangladesh’s growth will remain robust but slower than in recent years, while Pakistan and Sri Lanka are projected to strengthen. However, risks such as commodity market disruptions, fiscal consolidations, financial instability, severe weather events, and slower-than-expected growth in China and Europe pose significant threats to this outlook.

Inflation and Monetary policy:

• Global inflation: Expected to moderate, averaging 3.5% this year
• Central Bank policies: Likely to remain cautious, keeping interest rates about double the 2000-19 average

The World Bank notes that geopolitical tensions and trade fragmentation could disrupt global trade networks, with inflation persistence potentially delaying monetary easing. Conversely, quicker-than-expected global disinflation and stronger US economic performance are potential upside risks.

The Reserve Bank of India (RBI) held its first Monetary Policy Committee (MPC) meeting since the Lok Sabha Elections 2024. In a significant move, the RBI decided to keep the repo rate unchanged at 6.5% for the eighth consecutive time. The last change in the benchmark interest rate was made in February 2023. Here are the key highlights and outcomes from the RBI MPC Meeting in June 2024.

Key highlights of RBI MPC meeting June 2024

Repo rate unchanged:

The key interest rate (repo rate) remains steady at 6.5%. This decision marks the eighth consecutive time the RBI has held the rate.

Focus on inflation control:

The RBI emphasized the need to withdraw its accommodative monetary policy stance to curb inflationary pressures.

Growth projection upgraded:

The real GDP growth forecast for FY25 has been revised upwards to 7.2% from the previous 7%.

Inflation forecast maintained:

The inflation forecast for FY25 is retained at 4.5%, with food inflation still a significant concern.

Current account deficit:

The current account deficit for FY25 is expected to remain within sustainable levels, ensuring economic stability.

Foreign exchange reserves:

India’s foreign exchange reserves have reached a new high of $651.5 billion as of May 31, 2024.

Bulk deposit threshold raised:

The threshold for bulk deposits has been increased from ₹2 crore to ₹3 crore.

Rationalisation of export and import regulations:

The RBI plans to rationalize export and import regulations under the Foreign Exchange Management Act (FEMA) to streamline trade processes.

Digital payments intelligence platform:

A new Digital Payments Intelligence Platform will be established to leverage advanced technologies for mitigating payment fraud risks.

Auto replenishment of digital wallets:

The RBI has brought the auto replenishment of balance Fastag, NCMC, and UPI-Lite wallets under the e-mandate framework to enhance convenience and security.

The RBI’s decision to keep the repo rate unchanged at 6.5% underscores its focus on balancing growth and inflation. With an upgraded GDP growth projection and maintained inflation forecast, the central bank aims to foster economic stability while addressing inflationary challenges. The upcoming initiatives, including the Digital Payments Intelligence Platform and changes in the bulk deposit threshold, reflect the RBI’s commitment to modernizing and securing India’s financial ecosystem. The next monetary policy announcement is scheduled for August 8.

May 2024 has seen a mix of economic signals from around the globe. While Japan faces a decline in consumer confidence, the US continues to grow at a modest pace amidst inflationary pressures. Germany’s inflation rate surpasses expectations, indicating potential economic challenges ahead. On the other hand, India benefits from substantial financial commitments from ADB and shows strategic moves in gold reserves and oil sector investments. These developments paint a complex picture of the global economic landscape, with each region navigating its unique set of challenges and opportunities.

Here’s a quick snapshot of key economic developments around the world:

Japan’s consumer confidence index falls

In a surprising turn, Japan’s consumer confidence index declined to 36.2 in May from 38.3 in April, falling short of market expectations of 38.9. This dip indicates a growing pessimism among Japanese consumers about the economy’s future. The decline could signal potential challenges ahead for consumer spending, which is a crucial component of economic growth.

US economy shows modest growth amid price resistance

According to the Federal Reserve’s Beige Book survey, the US economy expanded at a “slight or modest” pace across most regions since early April. This period saw consumers increasingly resisting higher prices, a sign that inflation pressures might be affecting spending habits. The report highlights the ongoing struggle between economic growth and inflation control, with price hikes potentially dampening consumer enthusiasm.

Germany’s inflation surpasses expectations

Germany’s EU-harmonized annual inflation rate rose to 2.8% in May from 2.4% in April, exceeding market forecasts of 2.7%. This preliminary estimate suggests that inflationary pressures in Europe’s largest economy are intensifying. The higher-than-expected inflation rate may prompt further scrutiny of monetary policies and their effectiveness in controlling price stability.

ADB pledges $2.6 billion to India for development projects

The Asian Development Bank (ADB) has committed $2.6 billion in sovereign lending to India in 2023. These funds are earmarked for a variety of projects aimed at urban development, industrial corridor enhancements, power sector reforms, climate resilience initiatives, horticulture, and connectivity improvements. This significant financial support underscores ADB’s confidence in India’s development trajectory and its potential for sustainable growth.

Gold’s rising share in India’s forex reserves

The share of gold in India’s total foreign exchange reserves has climbed to 8.15%, equivalent to $52.2 billion in FY24, marking an 11-year high. This increase reflects a strategic move to diversify the reserve portfolio and hedge against global economic uncertainties. Gold’s rising share highlights its importance as a safe-haven asset in volatile times.

Indian oil and Gas sector’s capex progress

Indian oil and gas public sector companies have achieved over 6% of their total capital expenditure (capex) target in the first month of FY25, according to provisional data from the Petroleum Planning and Analysis Cell. This early progress in capex spending indicates a strong start to the fiscal year and underscores the sector’s commitment to enhancing infrastructure and capacity.